Introduction

Welcome to Sale-Leaseback training with VLU. This course is designed to give you a better understanding of a sale-leaseback is.

By the end of this course, you should be able to:

• Understand the difference between a Sale-Leaseback and a financial arrangement
• Account for Sale-Leaseback gains or losses
• How to determine if it is a sale lease back or financial agreement

Please take a moment to review the agenda. To view a particular topic, please jump to the corresponding timestamp.

Sale – Leaseback

In this video, we will discuss what a sale-leasback is and how it is different than a financial agreement.

To understand what a sale lease back is, it is best to provide a scenario regarding real estate.

In our example, a company owns the building their headquarters is located in. The company needs to free up capital and decide to sell the building they are located in to an investor. The company then will turn around, and lease it back from the from the investor. Hence the name ‘Sale Leaseback’.

The result of doing this frees up money that would have been otherwise tied up in the ownership and maintenance of the building.

So how is a sale leaseback different than borrowing against the property? Sometimes, the difference is minimal. A sale leaseback may not be as favorable in opening up extra money versus borrowing against the property, and vice versa.

Accountants are asked to determine if what is trying to be done is a true sale leaseback through a series of external tests, which are done outside the Visual Lease Platform.

An example of this would be a company that sells its headquarters facility and then leases that facility back for 20 years. The sale price and the lease rate are both reflective of actual market conditions.

Almost everything else about this transaction classifies it as a sale-leaseback. However, say at the end of the 20 year term they are given the option to buy the property back for $1, which is a bargain purchase option. That is probably enough to fail the sale-leaseback test, as the lessee has a significant economic incentive to repurchase the property, Accountants, however, would need to determine if the leaseback passes or fails. Failing would just make it a financial arrangement.

A company may have a gain or a loss from a sale leaseback, at the time of the sale. This will need to be recorded in the Visual Lease platform.

To accomplish this, first, navigate to the admin tool located here. Next, select financial categories and then select, Add Category.

A popup window will display. Give it a name, code, and abbreviation. Next, select the Rollup Category name, then select GL Entry for the type.

In the subtype, select Gain or Loss on Sale-Leaseback located toward the bottom of the list.

Once the information is entered. Click Save, to save the new financial category.

Next, navigate to the lease record. Select financials, then select Entries. Here, you will create a financial entry on the gain or loss on the sale-leaseback. Please note, the frequency of this entry should be for a one time, GL only, entry. This will cause it to flow to the proper place on line 6 of the disclosure report which will indicate the gain or loss on a sale-leaseback.

After the sale, the company will now be in a lease for the facility, and it should be managed just like any other lease they have.
The example we just gave is for a successful sale-leaseback. But, what if it is considered a failed sale-leaseback?

It is important to note, if a sale-leaseback fails the accounting tests to be considered on, that does not mean that legally the company does not have a valid lease, or a valid sale. The difference is when it fails, the company will account for the transaction, payments, and cashflows as if it were a mortgage loan and will be paid back over time.

The key in a failed sale-leaseback is that it should not appear in the financial statements as a lease and should not be included on the disclosure reports.

The best way to handle this in the Visual Lease platform is to create a lease record. This will allow the company to manage the terms of the contract, manage the payments, as well as everything else. However, an accounting schedule should not be created since the data should not flow through to the reports.

If the company wants to track everything in Visual Lease, it is recommended that when creating the record, it is created to make it something other than a “real estate expense lease”. They can create a new category title “leaseback” to help isolate the record from everything else and make it stand out.

If the company wants to create a schedule, it is recommended to set it up as a hypothetical schedule and set it up as a finance lease in order to not have it feed to journal entries or disclosure reports.

Key Takeaways

This concludes Sale-Leaseback and Exercise Options training with VLU.

Remember…

• Companies typically complete a sale-leaseback to raise cash for company.
• A sale-leaseback should go through a series of tests to determine if it is a true leaseback or a financial arrangement.
•  Account for gain or loss of a sale during a sale-leaseback

Thanks for watching. Any questions, suggestions, or feeback can be sent to support@visuallease.com

Introduction

Welcome to Partial Abandonment Training with VLU. This course is designed to give you a deeper understanding of what a partial abandonment is, when to use it over an impairment and how to one.

By the end of this course, you should be able to:

•  Know the difference between abandonment, impairment, and termination
• When to choose an abandonment vs. an impairment
• And how to split lease data in preparation for the partial abandonment.

Please take a moment to review the agenda. If you’re looking for a specific topic, please jump to the corresponding timestamp.

Abandonment Differences

In this video, we will discuss what an abandonment is and how it is different from a termination and an impairment

Before determining the differences between abandonments and terminations or impairments, we need to define what an abandonment is. In essence, it is when a company is going to cease use of a particular asset either partially or completely.

Two terms are introduced that are not used elsewhere in lease accounting: Decision Date and Cease Use Date.

The decision date is the date on which the entity determines the asset is to be abandoned. This decision necessitates changes in the accounting of the asset. The decision date will be the starting date of the new accounting schedule.

The Cease Use Date is the last day the entity will use the asset. This date is critical, as the Right of Use Asset will be fully amortized by this date, save any residual value.

We should also mention the end date is the end of the contractual obligation. This will remain the original lease expiration date, unless the lease contract is modified.

An abandonment is different from a termination because a termination will relieve the lessee of the obligation for future payments, whereas the abandonment will continue to be obligated to make all future rent payments. The company will not be utilizing the asset though, which means that it no longer has the value that was once recognized. Therefore, the value needs to be removed as an asset from the books.

The difference between an abandonment and an impairment is primarily one of timing. An impairment is a recognition that this asset no longer has value to the organization, so it gets written off. The difference is that an impairment happens today. So if we were to run an impairment with today’s date, the full value of the impairment is written down this month.

An abandonment also removes the value of the right of use asset, but it does so between the decision date and the cease use date.
A partial impairment means that only a portion of the value of the asset is going to be written down, and the rest of the value will remain in place.

For example, a tenant leases two floors of an office building, but now they only want one floor.

The landlord will not relieve the tenant of the obligation to pay, but if they are not going to use one of the two floors, the value of the floor being given up by the tenant needs to be removed, which happens immediately. Essentially, if the tenant impairs an asset today, it will be written off today as well.

The difference between an Abandonment and an Impairment or Partial Impairment in this example, is that an abandonment can remove the value of that unwanted floor between the decision date and cease use date, not immediately like an impairment.

For example, let’s say today is March 1st, and the tenant wants to cease use of one of the two floors they lease on September 1st . The tenant will take the full value of that abandoned floor and write it off over the 6 month period between March 1st and September 1st so that the right of use asset ends up being zero.

Choosing Abandonment vs. Impairment vs. Partial Abandonment

In this video, we will discuss examples of when to choose an abandonment over an impairment or partial abandonment.

Deciding to choose Abandonment versus Impairment has to do with the timing of the event.

As stated in the previous video, an impairment takes place immediately whereas an abandonment can take place in the future, therefore recognizing a future event to take place.

So the question asked is “why not just wait until the lease is abandoned and run an impairment the month it is given up?”. The short answer to this question is that it is not proper accounting. When it is known that the asset will be abandoned, the asset must be written down during the time leading up to the abandonment. Those expenses need to be on the books instead of all of it being accounted for immediately when the asset is abandoned.

It is more appropriate to modify the lease until the abandonment date so the right of use is written off to zero. Doing it in this manner will allow the company to disclose to investors or even the public, of their intentions.

So what about only giving up part of an asset or a partial abandonment?

Before we get into the portfolio approach, it is important to note that technically each identifiable asset should be identified and accounted for separately. For example, leasing 100 cars for a fleet. Each car will be its own leased asset. However, the accounting standards permit us to use the portfolio approach, that is, to treat the group as a single asset, if doing so yields the same results as measuring each asset individually.

When using the portfolio approach, those 100 cars will be grouped together as one entry with all the payments recorded together but are still treated as individual assets.

Please note, if using the portfolio approach, the asset needs to be substantially the same. For example, you can use the portfolio approach with 2 floors of an office building but not one fleet vehicle, one floor of an office building, and a transport ship.

In essence, if the assets were treated as individual leases or treated together as a single lease, the results would be the same. The portfolio approach is typical for companies that lease out facilities.

Splitting Lease Data for Partial Abandonments

In this video, we will discuss how to split lease data in preparation for partial abandonments.

In cases where part of an asset is going to be abandoned, and another part will be retained but they can’t actually be segregated, they will need to be disaggregated and treated as two separate entities before a partial abandonment can take place.

To do this, we will need to split the data in the portfolio.
On the entries page, we can see the lease was originally set up with the initial entries as base rent as seen here. So we are taking 33250 a month and taking 3% increases beyond that.

On the lease accounting page we see that is the methodology we applied and the appropriate payments are continuing throughout remainder of the lease.

Do complete a partial abandonment we will need to split this lease up into two components. Back on the entries page we’ve set up a second component with a portion of the payment which is effective 1/1/2023, located here.

Since we are splitting the payments we will need to modify the initial entry. We will add an unscheduled increase on 1/1/2023, it does not repeat and the base amount will be $20,000 which is the remainder of the amount that wasn’t split off into the other payment.

By inserting that amount you will see that the reduced amount is still increasing by 3% annually and the payments are still on track but now they’ve been split where both payments equal what the original one was.

Once the changes are made, click save.

The next thing that needs to be done is splitting out the lease accounting schedule, creating a different schedule for what is being kept, and what is being abandoned.

Before we move forward with a modification of the initial calculation, you will want to take note of the interest (or discount) rate of the initial calculation. To do this, click “Show More” located here, and scroll down until you see the interest rate, located here.

On the lease accounting page, select the initial calculation that was created and click here. Then select Remeasurement Calculation. In the wizard window, select Modification and enter the effective date of the split.

It is important to note the date we input here, is NOT the date the partial abandonment will take place. This is because we cannot do two things in sequence on the exact same date since the system looks to the date preceding to get opening balances for that particular day.

So for this example, instead of January 1st 2023, we will enter February 1st, 2023.

Move through the wizard and on step 4 you will have to use the same discount rate for both schedules. In this case, it is an 8% incremental borrowing rate.

On step 5 you will see both entries are listed as lease payments. For this calculation, we will want to exclude the payment that we will be abandoning.
Please note, the scheduled amount listed here is the amount from day one of that financial entry, not the amount going into the calculation.

Finish the calculation and click save.

So now we have the modification of the initial calculation. On the schedule we can see the new remaining amount and the right of use asset is somewhat decreased. The schedule now shows the appropriate changes to take what I’m keeping.

The journal entries bring everything down.

For the portion that is being abandoned, we will need to create a NEW calculation, not a modification of an existing calculation.

To start, click on New Calculation, here and the wizard will open. For the calculation name, name it something that will help you identify it. In our case, we will name it Abandonment Portion and use the start date as 1/1/2023 and the same end date.

On step 4, you will want to use the same discount rate that was used in the modification calculation. In our case, it is 8%.

On step 5 you will see both entries are listed as lease payments. For this calculation, we will want to exclude the payment that was kept in the modification and keep the amount we are abandoning.

Save the calculation and return to the lease accounting page.

So now, the two schedules can be seen here; the modified portion of the original schedule, and the abandoned portion. Both of them add up to the amounts from the initial schedule, but now are separated out into two distinct schedules.

We are now ready to perform the actual abandonment calculation.

It is important to note: when creating the split, take care to ensure there is no gain or loss event for the user concerning the right of use asset that is pushed off into the abandonment portion.

To create an abandonment calculation you must create a recalculation of the New “Abandonment” Calculation we just created by clicking here, and selecting Remeasurement calculation.

The popup wizard will open. From the dropdown, select Abandonment. After making the selection, there will be three different dates that need to be entered.

The decision date, which is the date that the new schedule will commence. This is essentially the same thing as a commencement schedule. For this example, our decision date will be 2/1/2023.

Select “No” for Asset Previously Impaired.

For Go Forward Accounting, select “Loss of Straight Line Lease Cost”, which will typically be the case since the asset will be written down in equal amounts over the remainder of the use.

The cease use date is the last date that the occupier is going to be utilizing the premises. For this example, we will enter August 31st, 2023 then click Create remeasurement.

Note: We will discuss Salvage Value later in this video.

On step two it is important to point out that the cease use date we entered is located here, the decision date is also the start date which is seen here. The assumed end date however will reflect the end date of the original value. This is because abandonments do not relieve any future rent payments.

Once everything is entered, click save.

Please note: an abandonment recalculation will not require you to fill out the additional steps in the wizard since there is no discount rate nor change in the payment throughout the remainder of the lease term since an abandonment is not a remeasurement. Everything is based off the original values, but the results will be different.

Checking the Abandonment calculation and scrolling down, you will see on the schedule we will see the part that we are abandoning and what the payments are.

You will also see that the right of use asset if going to amortize in equal steps down over the period of time up until the cease use date that we entered and will be zero from that point forward. The liability continues to burn down over time because payments will continue to be made throughout the life of the lease.

Please note, the results displayed are for a partial abandonment since we split the asset data. For a regular abandonment we would just create the abandonment remeasurement on the entire lease instead of the abandoned portion we just walked through.

So what about salvage values in abandonments?

When creating the abandonment calculation, there is a field to enter a salvage value. A salvage value isnt something typically seen in real estate, but instead with fixed assets. In real estate, salvage will deal with subleases.

For example, a $500,000 lease is abandoned at some point in the future but it is anticipated that there is enough of the lease term left that some income can still be made from it. Therefore, we do not want the asset to burn down completely to zero. Instead, we only want to burn the asset down whatever amount we anticipate, for this example, we think we will get $100,000 in subleased income from the asset. We will only abandon $400,000, leaving that $100,000 income.

A company wants to recognize that they want to have an expense to measure against that sublease income but they do not want to take the expense right up front as if it were an impairment. Doing the abandonment will allow them to properly time the cashflow.

Key Takeaways

This concludes the partial abandonment course with VLU.
Remember…

• Abandonments are meant to write off the right of use asset over time, not immediately.
• For partial abandonments, you will need to split the lease data for what is kept, and what is abandoned
• Salvage Value for real estate allows companies to estimate an amount of subleased income from an abandoned amount.Thanks for watching, any questions, suggestions, or feedback can be sent to Support@visuallease.com

Introduction

Welcome to Percent Rent training with VLU.

This course is designed to introduce you to the percent rent module in the Visual Lease platform. By the end of the course, you should be able to:
– Navigate the percent rent module
– Add, edit, and delete formulas
– Configure the formula to meet your requirements
– Create, read, and edit worksheets related to the formula
– Create and manage payments for your records using the import and Multiple Lease Update tools

Please pause here and take a moment to review the agenda. If you are looking for a specific topic, feel free to navigate to the corresponding timestamp.

Creating a Formula

In this video, we will walk you through the process of creating a percent rent formula inside the VLU platform.

Although rare, some lease contracts include payments that are calculated as a percent of the income of the business. Typically, this would be a percentage of the sales from a retail business.

The exact details will be contained within the lease. The percent rent module provides the tools necessary to abstract the details, calculate the amount owed, and add these items to relevant reports.

Before we begin, it is important to note that each lease can have multiple percent rent formulas and worksheets. For the following example in this video, we will create a single formula and worksheet.

To begin, open a lease and Navigate to the Financials Tab then select Percent Rent and click Create Formula.

This opens the Create formula pop-up. Here, you can add the details to create the formula to calculate the amount owed.
First, a name is required for the formula. The name can be anything that makes sense for your company.

Select the payee from the dropdown menu. The menu is populated with payees added in the payees module. A payee will need to exist in the record for one to be selected here.

Select the reporting period. This is how often the amount is to be recorded.

Note, ensure the recording period is not confused with the reporting period on a lease.

Also NOTE: this option does not describe how often the obligation is to be reported, only how often the amount is to be calculated. Typically, the amount is recorded monthly, but quarterly and annually can be selected as well. Selecting monthly will allow for an appropriate fiscal year calculation by establishing exactly when those month beginning and end period occur.

You can also add comments about the formula for your convenience.

In this section, you can add breakpoints and enter the percent rate rent.

If a natural breakpoint is selected, the platform will automatically calculate the breakpoint based on the rate entered. The breakpoint is the amount of sales made at which the payor must start paying or accruing percent rent.

For example, if there is a 1 million dollar annual breakpoint, then all sales that happened early in the year will not have any percent rent obligation, until the point in time where sales exceeds 1 million dollars. At that point you apply your rate to the amount that are above that 1 million dollars. So if the company sells 1.1 million dollars and the percent rent rate is 6%, the company will pay 6% on the 100,000 dollars above the 1 million dollar breakpoint which would equal $6,000.

By default, the expense includes only base rent, but it can be customized to include any necessary expenses.

If unnatural breakpoint type is selected, the amount must be entered here. An unnatural breakpoint is different because it does not follow the formula of the natural breakpoint which is the base monthly rent divided by the percentage rate. If the formula determines the breakpoint to be $6,000, any other amount is given, it would be considered an unnatural breakpoint.

If the unnatural breakpoint changes at any point in time, an individual formula will need for each new breakpoint amount.

When using a breakpoint of any kind, an additional option will appear for you to select how often the breakpoint is to be applied. Typically they are applied over the entire worksheet, but Monthly or split over period can be selected as well.

Although rare, some lease agreements apply a different percent rent rate over multiple tiers. You can add multiple tiers by clicking the Multiple Tiers button, here. New buttons will appear allowing you to save the settings for each tier or return to Single Tier.

In these fields you can enter the minimum and maximum sales amounts for that tier. Once saved, each tier will appear in a list here. You can delete a saved tier using the X button located to the right.

The next section contains additional options you may need depending on the specifics of the contract, including a cap amount and additional offset. Leave these set to zero if there is no cap or additional offset. If your contract does include them, you can set how often they are applied.

You can also enter a net effective base rent percentage here, if necessary; and, select whether you will accrue the payments or make cash payments.

Here, you can select whether or not negative percent rent should be allowed. When allowed, negative percent rent owed will be recorded as a credit towards the next period of percent rent owed.

Finally, there is the option to process automatically. When this option is selected, this percent rent calculation will be included in the Multiple Lease Update tool.
When your formula is configured correctly, click Save.

A saved formula can be deleted or edited using the links here.

Creating a Worksheet

In this video, we will discuss how to create a new worksheet and how to navigate it on the Percent Rent module.

Once a formula has been saved, you have the option to create a new worksheet for it. Worksheets allow you to view and edit financial entries related to the percent rent formula. In this video, we will show you how to create, navigate, and export a worksheet.

Clicking the button will prompt you to enter a start and end date for the worksheet.

Note: the date options available when creating worksheets will reflect the recording period selected when creating the formula.

For example, if the formula calculates monthly, the start and end date to create a worksheet will prompt you to enter the month and year.

If the recording period is annually, you will only be asked for starting and ending years to create the worksheet.

Once the start and end dates are selected, click Save to generate the worksheet. VL will then display a worksheet table below.

The worksheet table contains rows for each month and year. The columns display the amount for Gross Sales, Exclusions, Percent rent due, outstanding liability, and more. By default, the platform shows only the details typically needed.

Additional details related to breakpoints can be viewed by selecting Show More to the top-left of the table, or hidden again by selecting Show Less.

Note: If you need to edit or delete the formula for this worksheet, click here. This will open the option to edit the formula, or to delete it.

Additional worksheets can be created with a different date range as necessary. You may also delete a worksheet if necessary, by clicking here. Also, you can select the worksheet you wish to view opening the panel.

To edit the entry for that period, click the pencil icon located here.

In this window, you can edit the gross sales, exclusions, and offset amount.

When manually entering the first sales amounts you will see the “net sales in excess of breakpoint running” change to a negative number. This number is the amount left until the breakpoint is reached and a percent rent is due.

Adding a couple more months worth of sales and we will reach our breakpoint. When this happens, there will be a percent rent due and an outstanding liability. Once the Rent is paid and recorded, the outstanding liability will drop to $0 and the amount will be reflected in the Payments Made column. More will be discussed on recording payments and managing leases with percent rent later in this video.

You can also click here to create a non-recurring payment entry, which we’ll go over in detail in the next section of this video.

At the bottom right of the section there are links to export the selected worksheet to Excel. You can export all of the details entered, or only a monthly sales report.

Payment Entries

In this video, we will walk you through the steps of creating a payment entry related to the percent rent module.

To access a payment entry from the percent rent module, click the magnifying glass icon on a worksheet to open details for that period, and then clicking Create Non-recurring Payment. This navigates to a new page where you can configure the payment entry.

To create a non-recurring payment entry, while in a worksheet, click here, and select it. This will open a window where you can configure the payment entry.

On this page, the required fields are marked with a red asterisk. To view optional fields, you can check the box located here.

For the category, be sure to select the category created for percent rent payments. The other required fields will populate automatically based on the data entered and calculated by the platform. Check each field before saving to ensure that it is correct.

As with other payment entries, you can select to send this payment to your accounting feed or identify it as a variable payment for FASB and IFRS reporting. You can also choose to have the platform automatically add details related to this payment to a clause by clicking here.

Once the payment is configured correctly, click Save. You will be navigated back to the Percent Rent module, and the payment will appear in in your financial entries module.

Managing Payments

In this video, we will discuss how to manage payments for all leases by using the import sales information tool and processing the payments with the multiple lease update function.

In many cases, there are sales figures that will need to be updated for multiple leases or multiple months of sales within the same lease, instead of manually updating each one individually.

To accomplish this, navigate to the tools icon, located here. Then select import lease information. With the import lease information window open, scroll to Import Supplemental Templates and select Percent Rent Sales.

A new window will open where you can download the template here, or upload the template. For now, we will click the link to download the template.

With the template downloaded and opened you will see three tabs at the bottom.

The first is Percent Rent Sales import. This tab will be used if you only have one formula for and no exclusions when applying percent rent. Use this simpler tab to input your gross sales using the month and year. Please note, if there is more than one formula, using this tab will cause an upload error.

Next you have Percent Rent Sales Import Advanced. Use this tab if there is more than one formula for defining percent rent for the lease. Here you will enter the lease ID, the percent rent formula name associated with the lease, the month and year, gross sales and any exclusions.

Once the information is entered, save the file.

Back on the percent rent sales import window, click browse and select the template you just saved. The file name will display, here. Next, click Upload and Process to upload the data into the platform.

Please note, do not click the upload and process button again until the results section populates and the import has finished. Clicking the button while the import is still taking place may result in duplicate uploads.

Once the import is complete, the results will display, here. This will display the number of rows from the spreadsheet that were processed, unchanged, updated, inserted, and had errors.

If any rows from the spreadsheet fail the validation, the data from that failed row will display here. Note, if you refresh the page, or navigate away from it, the error log from this upload will no longer be available. To preserve the error list, click here, to export the grid for reference while correcting the rows in the spreadsheet.

So, what if you have an error? To correct an error first export the grid as noted before. Then open your import template and remove any rows that were successfully uploaded, leaving only the failed rows visible. Make the corrections needed for the problem rows.

Then, make sure there are no blank rows above the edited date. You can either cut and paste the edited row to the top blank row, or remove any blank rows so the data is populated at the top with no gaps above it. This is important because if there are blank rows above the data, the upload will display an error.

Next, save the temple with a different name. Once saved with a different file name, navigate back to the Percent Rent Sales upload page, and upload the corrected spreadsheet to the platform, repeating these steps until no more errors are displayed in the results.

Two common errors that are seen when uploading are, Formula “Value” was not found for Lease ID “Value”, and More than one formula was found for Lease ID “Value”. Unable to decide which formula to use.

The solution to these two errors are as follows:

For Formula “Value Not Found for Lease ID “Value”, this means you used the wrong formula name, or misspelled it. You should refer to the Formulas Defined tab of the import spreadsheet which will give you all the formulas created for leases within the platform. Copy and pasting the formula name from this tab into the advanced tab.

For More than one formula was found for Lease ID, you should cut the data from the PercentRentSalesImport tab and paste it in the PercentRentSalesImportAdvanced tab. Then populate the Percent Rent Formula Name column.

After uploading it, when we navigate back to the lease, you can see the payments we filled out in the template have been recorded here.

Now that the sales information has been uploaded, it is time to process the payments to the leases with this data using the multiple lease update tool.

This can be done manually through each lease as we showed earlier, however that can be cumbersome and there are easier ways complete this task. Please note, the following example is the recommended way to complete this but you are not restricted to this method. Create a setup that will work best for your company. Please contact your Customer Success Manager for assistance in configuring your platform in this way.

To begin, it is important to understand that the multiple lease tool can use filters that are created and tied to clauses which will help us quickly process payments for a particular month or quarter, or even annually. There are instances where multiple months need to be processed at once and it is important that we filter so only the leases that require the processing of payments for percent rent are filtered in.

In order to set up the filter, we will first need to open the administrator panel and select Clauses in the Lease Setup list.

Once open, select Percentage Rent to open the list then select Add Clause. Fill in the name, code, and for the type, select “list”.

Type in each month and click add, to add it to the list. After adding the list, click Save.

Next, we will need to add the clause we created into a lease. Navigate to a lease record that has percent rent in the clauses. Select Manage clauses and find Percent Rent. Here you should see the clause we just created, but it is unchecked. Check the box to add it and click save.

Open the new clause we just activated. Here you can see the list of months we created. You can check any number of months to apply the payment to. When selected, click Save & Close.

Once closed, go to the main menu and select Leases, then list. This will open up the list of leases in the platform.

On the left hand side, open the panel Create New Filter. Next, select the field “Contains Clause” and a popup window will open. Here, type in the name of the clause we created in the administrator panel. As you type, the list will narrow down. Select the clause, check the month or months to be automatically selected, and click Save. Next, you must save the filter and name it. In this case we will select one month and name it accordingly. Repeat these steps as necessary for additional months, years or quarters.

Once complete, navigate to the multiple lease update tool again. Ensure the Lease Selection section is Based on Criteria then select, Load Saved Filter and find the filter you just saved. As a result, the filter will bring over all leases that need to process a payment for the month or months selected in the filter.

Next select the action “Process Percent Rent Payments/Accruals”, enter the process as of date, which in our example will be for March, and the effective date, which is typically when the payment is made and should be a date any time after the processing as of date.

If you wish to process net effective base rent, keep this box checked. Otherwise it can be unchecked.

Next, check the box to “Apply to accounting feed”, select your recording period, which will typically be monthly, then select the first radio button in the Actions section to Process Percent Rent Payment/Accruals.

Please note, if you elected to “Process Percent Rent payments from Accrued Balances, the system will start accruing monthly payments until the payment is processed. For example, you process Payments in April for the quarter. You will accrue Percent Rent Payments for January through March, then process the payment for those months in April.

Double check the selections and click Perform Action on Specified Leases to process the payments. Let the process run until it is complete.

Next, you can head to a lease that contains percent rent and check the entries to ensure the processed payments are logged and accounted for.

Key Takeaways

This concludes our course on Percent Rent.

Remember:
– You can create necessary percent rent formulas in the percent rent module
– You can configure the formula as necessary to match the terms of your lease
– Worksheets are edited to contain the data used in the formula to calculate the percent rent amounts
– One-time payment entries can be created within the module
Thanks for watching. Questions, suggestions, or feedback can be sent to support@visuallease.com.

Welcome to Sublease training for FASB 842, IFRS 16, and GASB 87 with VLU. This course is designed to give you a better understanding of the accounting treatment of subleases under FASB 842 within the Visual Lease Platform

By the end of this course, you should be able to:

• The difference between Master Lease, Overlease, and Sublease
• Understand the accounting treatment of subleases in FASB 842/IFRS 16
• Understand the accounting treatment of subleases in GASB 87

Please take a moment to review the agenda. To view a particular topic, jump to the corresponding timestamp.

Master Lease vs. OverLease

In this video we will discuss the differences between a Master Lease and an Overlease.

There are differences between a master lease, an overlease, and a sublease, and it is important to note the are not interchangeable words.

An overlease is a lease that is superior to a sublease, and a sublease is sometimes referred to as a subordinate lease. Together, they set up a chain of ownership.

For example, in real estate, there is a company who owns the land and the building on it. That company chooses to lease their assets to another party who becomes the subtenant. If permitted, the subtenant may have the right to sublease all or part of their asset to another entity. When they sublease a portion of their leased asset, they become the overlease. So the flow of ownership will look something like this: Fee holder (or the land and building owner) or the master lease, to a lease holder which is the overlease, to a sublease holder that is being sublet by the overlease holder.

All of them rank in terms of interest from one superior to another inferior.

**Master lease change to fee holder
** Fee Holder > Lease holder
**when subletting > change lease holder to overlease

Subleases are always part of an overlease.

As explained a moment ago, the overlease entity may not own the property but can lease some or all of their portion of the lease out all or part of the asset to another entity.

For example. Company A leases 6 floors of a 10 story office building. They can sublease out all 6 floors, or 1 floor, or any amount in between so long as they do not rent out more than the 6 floors they have the agreement for. The company that leases the 6 floors would be the overlease. Company B rents, say, 2 of those 6 floors would be the sublease and sub tenant.

A master lease, on the other hand, is a lease that encompasses more than one asset.

For example, a company can have master lease agreements with real estate developers with one legal document that includes properties in Iowa, Kansas, Kentucky, and Florida. They are all different real estate, but under a single lease agreement. Since the lease includes multiple assets it becomes the master lease

ACS 842

In this video, we will discuss how subleases are treated under FASB 842 standards.

When subletting under FASB 842, the standards indicate that the treatment is to book all leases, including subleases.

So, what does this mean? Because the overlease and sublease are two separate documents, with different parties, terms and conditions, they should be entered into the Visual Lease platform as two records. They are treated as two distinct accounting schedules. Neither ASC 842 nor IFRS 16 permits the sublease income to be treated as an offset to the overlease expense. The reason is simple; if the subtenant fails to make their payments, the tenant/sublessor is not relieved of their obligations under the overlease.
**PPt change (sublease to sublessor)

It is important to note, the company will need to make one of the two records an income record, and the other should be an expense record.

To set this up, we need to go to the contacts tab as there are some differences that need to be noted.

First, if it is an income lease, the company should put their own information in as the landlord and put their sub-tenant in the tenant field and then the payor.

Next, the company will need to navigate to the financials tab and open the Payees window. Here, the company will need to add the tenant from the contacts tab as the Payee, which will be listed here. We know the tenant is the payor, but this crucial step is important for the platform to create the appropriate financial records.

On the entries page, the category should show Base Rent Income and the record will need to be changed from “payable” to a “receivable” which will change this drop-down from “Payment-To” to, “Payment-From”, and will create the proper schedules.

Why base rent income? This is to be consistent with the underlying accounting that will need to be done, as well as remain consistent with the overall treatment under FASB 842. Under 842, sublease income is treated as income, not as a reduction in the overlease’s rent payments.

We have also added a one-time lease commission as noted here. This amount will be used when creating the schedule.

Once the entries are set up and consistent with the accounting treatment, the best practice is to create the lease accounting schedule to be associated with it.

To create the new schedule, we will need to create a new calculation on the lease accounting page.

Go through all the steps of the wizard to create a standard calculation.

In step 3, it is much simpler due to it being an income record, and only have the Accrued Rent Receivable field to complete. It is important to note that the accrued rent is the impact of straight lining on the schedule.

Just as the difference between the cash paid and straight-line rent expense is called “Deferred Rent”, the difference between cash receipts and straight-line rent income is called Accrued Rent Balance.

So, if there is a balance the company wants to bring forward, just enter it in the field in step 3. For this example, we will leave this a zero.

In step 4, ensure the Treatment is lease payment and the category reflects the Base Rent Income.

Also, check the box “Show Excluded”, then include the lease commission entry as a lease payment since it’s a one time payment and happens at the very beginning of the lease.

Once complete, click save and the platform will create the schedule.

Please note, there is no lease type test since the platform only supports operating leases from an income perspective.

Also note that with income leases, there are no transition or remeasurement options like you would normally see on an expense lease.

Instead, if for example, we wanted to shorten the lease by a year, we would have to create a new calculation with the same effective date, but for the end date, we will enter it a year earlier which is March 2025 instead of 2026. (14:00) Move throughuntil you get to step 3.

On step 4, check the box “Show Excluded”, then include the lease commission entry as a lease payment since it’s a one time payment and happens at the very beginning of the lease.

Under both ASC 842 and IFRS 16, operating income leases do not have an asset or liability associated with them the way expense leases do. In fact, if there is no straight-line rent impact, there is no impact on the balance sheet. Without that balance sheet impact, we therefore do not have a remeasurement option in Visual Lease for income leases in these standards.
That doesn’t mean that the leases never have to be modified, though. The lease term may be extended or shortened if the terms of the underlying lease change. The process for these changes is simpler than for expense leases. In fact, if there is no straight-line impact, there isn’t a need to change the schedule at all. To extend the term, just add on an additional schedule after the current schedule expires. This can be done ahead of time, just give the schedule a commencement date in the future. To shorten the term just end the schedule early using the End Calc function.

Note, though, that you should end the calculation in the final period. Using the End Calc function changes the status to Historical, even if the expiration date is in the future. That would preclude the appropriate journal entries from being posted in the final months of the lease.
If there is a straight-line impact to the income lease, then the schedule should be modified when the change is recognized.

Whether the change is an increase or reduction in the term or a change in the payment schedule, the process is the same. First, make the necessary changes throughout the lease record. Then end the existing calculation. It is usually cleanest to end the schedule on the last day of the month recognizing the change. Take note of the accrued rent receivable balance in the schedule being ended. You will need to enter that in the new schedule.

Now create a new schedule, starting on the next day (usually the first of the following month). In step 3 of the wizard, enter the accrued rent receivable. In step 5 of the wizard, be certain that only the lease payments and associated expenses within the new schedule dates. For example, the leasing commission we included in the earlier example is now outside the revised dates. That is not included in the new schedule; its impact is already factored into the accrued rent receivable balance. The resulting new schedule will have an adjusted straight-line rent, which amortizes the accrue rent receivable to zero at the new expiration date.

A quick note about IFRS 16. The process is very similar to that of FASB 842 since IFRS 16 includes public and private companies under the standards.

GASB 87

In this video, we will discuss how subleases are treated under GASB 87 standards.

GASB will be different that FASB since it will not treat subleases as straight lining exercise.

In the lease accounting window, when creating a new calculation, in step 3 of the wizard, we will see the field for “Initial Prepaid Income”, instead of “Accrued Rent Balance” like we saw in the FASB calculation. The reason for this field is that with GASB, they will have to set up balance sheet items and will need to know if income has come in ahead of time.

In step 5 of the wizard, we will have the ability to identify the lease commission as a lease payment, and will be reflected in the schedule.

Once the calculation is complete, we will see a present value of the lease payments, but you will also see something called deferred inflow. This is basically where the Right of Use would be for FASB. We also see a total ending receivable, which is where the Total Ending Liability would be in FASB. The treatment of these will be similar as FASB as well. The receivable will burn down based upon cash received, less the interest expense, and the deferred inflow is going to be based on the lease revenue, which is straight lined, less the deferred expense.

Related Leases: Connecting the Sublease

In this video, we will discuss the process of connecting a sublease to a main record through the related tab.

When a sublease is created, it will be affiliated with another lease record. Subleases always imply that there is a relationship between the sublease record and the main record and it can easily be managed in the Related Tab.

On the related tab, click Add Related to open the popup window.

From the dropdown, select a lease type relationship which can be an Overlease, Sublease, Master Lease ID, and Location ID. Then, enter the lease ID number to make the connection.

Please note, as you type the lease ID a list will populate. The more you type in the field, the narrower the list will become.

Once complete, click Link Record and you will see the related sublease connected to the lease we are currently working which is the overlease.

Please note, if we are working inside of the sublease and wish to connect it to the overlease, follow the same process, but instead of selecting “Sublease” like we did in the previous example, just select “Overlease” to connect it to the main record.

The result of making either type of connection is that it will create an independent record.

A question we may ask is “where do I see the reduction in my expense for the overlease?” The answer is you will not see this.

For example. If a sublease tenant defaults and stops paying the lease, the sublandlord is not relieved of obligations to the superior landlord. As a result, that liability cannot be reduced, the payments cannot be reduced, and 100% of the original payments to the superior landlord must still be made.

Key Takeaways

This concludes our video on Subleases for FASB 842, IFRS 16, and GASB 87.

Remember…

• Companies will need to have 2 separate records of the overlease and sublease.
• The related tab can quickly connect leases together as an overlease and a sublease
• Sublandlords over the overlease are still obligated to the superior landlord if a sublease tenant defaults, so payments cannot be reduced.
• It is important to understand the chain of ownership and the differences between a master lease and an overlease is important

Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

Introduction

Welcome to Non-Continuous Lease Terms and Fund Accounting Training with VLU. This course is designed to give you a better understanding of the accounting treatment for non-continuous (or seasonal) use of an asset, as well as Fund Accounting methods in the VL Platform.

By the end of this course, you should be able to:

• Set up an asset for non-continuous lease terms
• How to correctly edit the template to account for non-continuous lease terms
• How to include Fund Accounting into journal entries if you are a GASB client.

Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Non-Continuous Lease Terms

In this video, we will discuss the treatment of the schedule upload for the rare instance where a non-continuous lease term is required.

It is important to note, the most common type of non-continuous lease term is a seasonal rental, though this process can apply to any non-continuous term.

With seasonal rentals, there is a minimum guaranteed rent, but only while the property is made available .

So how does one account for that? To answer this question, let’s walk through an example.

Here is a seasonal rental lease we created. On the general tab, we created this lease for five SEASONS, which starts on November 1st, and ends on March 30th, which ends up being 5 in-season months every year, for a total of 25 months after the commencement of the lease

On the entries page, it was determined that it was going to be rented, in season, for $2000 a month, which would be the guaranteed rent. There may be a percentage on top of that while it is occupied, but remember that’s considered a variable payment and is therefore not used in our lease accounting schedule. We’re going to start here by entering the payments as continuous for 25 months, disregarding the irregular nature of the actual periods.

Next, create a new calculation and set it to active. The next step is important. Check the box “Use Schedule Upload”. Once complete, move through the wizard as normal until step 6 is reached. On step six, there will be a spot to upload the schedule as well as download the template. For this case, we’re going to download the template.

A popup window will display. Make sure to check the box “Schedule Information Populated”, then click here to download.

Once the template is downloaded, it is important to cancel the calculation. We will be doing another one with an edited template to account for the offseason periods.

Opening the schedule, we will need to modify it in order to reflect those off-season periods.

Please note, depending on the lease, some columns may not require data and can be left blank.

Enter the appropriate dates in the column if they did not export automatically. (18:35). Enter the additional months to the template to ensure the schedule foes to the actual lease expiration.

Next, find where the dead, or off-season, periods are and remove the data from the rows. The quickest way to accomplish this is to cut the information in the off-season periods, and paste them at the beginning of the in-season period for the duration of the lease. So it will look something like this <Show image>.

Repeat these steps until you reach the end of the term.

Once complete, you will see that there are gaps with no data in the off-season periods.

Please note: Any column that contains data during live periods must either have the balance brought forward or as zeros. The following example is to give you an understanding of the process of editing the template.

We will need to account for this by filling in information for balance sheet columns and placing zeros in the columns that deal with income, such as lease payment seen here.

Why zeros? Because there are no cash payments being made during those off-period months.
To complete the rest of the schedule for the off-season you will need to do the following:

1. In the columns for Lease Payment, Straight-Line E Expense, deferred rent and deferred running balance and amortization (calculation), enter zero dollars, since as mentioned a moment ago, there is no payments received during the off-period months.
2. The balance sheet items will need to be treated differently. We will need to take the balance on the account at the end of the in-season period and bring them forward with the same values for the off-season period.
a. To complete this, take the numbers from the last month during the in-season for Accumulated Amortization. Right of Use Asset. Gross Liability, and copy the data into the blank off-season months.
b. Now you can see for example, that the ROU Asset holds until payments begin again in the next in-season period (image 22:07)
c. Repeat this process for the liability schedules at the end of the spreadsheet (Image 22:15)

Once the changes to the schedule are made, save the schedule and close it. Then you can create a new calculation and schedule where we can upload the template on Step 6 in the wizard, the same spot we downloaded the template from.

The final step is you must first go back to the financial entries. Remember we had set the payments up for 25 consecutive periods. We must change that to reflect the actual timing of the payments. Therre are two ways you can do this.

You can modify the existing payment line by first changing the END DATE of the entry to be the lease expiration date, or if you leave it blank, the entry will assume the expiration date on the General tab. Then use the Planned Increases section to reset the amount to zero or regular payments on the appropriate dates. Be sure to save each increase, then save the entire entry.

Alternatively, you can create a separate line for each in-season period. The choice is yours; the platform can accept either method.

Fund Accounting for GASB 87 & 96

In this video we discuss what a fund is and the type of accounting treatment for the more typical entities of GASB 87 and GASB 96.
Please note, the following are examples of the many variations of Funds. Recognizing that there are many ways Funds to be recorded, the VL platform provides a simple way to account for them in the Journal Entries with interest and principle only.

A fund is like an accounting entity, similar to a subsidiary, which will have its own set of financial statements.

An example of entities that may use fund accounting can be a hospital or a school. However they are typically government entities.

While there are various fund types out there, we will discuss two common types of funds. The first is a general fund which will use a Modified Accrual basis. The second is a capital project will use a full basis accrual.

Before we move into the examples it is important to understand the difference between a Full Accrual Basis and Modified Basis since there are some differences.

Full accrual is when the revenue recorded is measurable and the expense is recognized when it occurs, or when the service was used. These tend to be companies that are for-profit. For example, when a company knows they will be paid at a later point, they can start recording that revenue. An example for expenses is when a company sends an invoice for a service rendered, even if it is a NET 30, the company will have to record that expense when service was completed, not when the invoice is due. In some instances, the company will need to estimate the expenses when services are rendered

Modified basis is when revenues are recorded when they are available, and expenditures are recorded when the fund liabilities are incurred or the assets are expended. These tend to be government entities and non-profits that are more focused on budgets. For example a company will be receiving a grant. When it is ready to be received, they will record the revenue, or in the opposite manner, the company will record the expense when they have incurred the expense. they are ready to pay.

Since a fund is a separate entity, they will have specific accounts related to the funds that don’t relate to the consolidated financial statements.

For example, if thinking about a government entity, when they go to report on their financial statements, they add all the funds together and create their comprehensive financial report.

The VL platform allows to record the funds as well as record the consolidated numbers.

Here you can see a sample journal entry. For GASB 87 journals, you can see this is a typical Journal Entry for the consolidated numbers. This Full Accrual side will show interest and amortization expense.

However when we show a Modified Accrual journal entry for a Fund, it will show the capital outlay, and will not show the amortization information but will display interest and principle.

There will still need to be some manual adjustments. For example, the AP Cash Fund is on both consolidated and Fund Journal entries and will need to be adjusted accordingly.

Creating these journal entries is easy. First, navigate to the lease accounting page and create a new calculation for GASB 87.

On step 2 there will be a checkbox for Fund Journal Entries. If left unchecked, the entries will only include the consolidated information. However, by checking this box, the Fund Journals (also known as modified accruals), will be included. After checking the box, continue through the rest of the wizard as normal. (34:16 image of checkbox)

After completing the wizard, scroll down to the journal entries and take a look at the first month. From here to here will be the standard consolidated GASB 87 journal entries.

The rest of the entries are for the fund including the Capital Overlay.

In the second month it will look a little different. All that is really needed is the interest and principal deduction from the liability which offsets the AP Cash fund.

Key Takeaways

This concludes our video on Non-Continuous Payments and Fund Accounting.

Remember…

• For seasonal payments it is important to properly edit the template before uploading it to the VL Platform.
• Payments should be zero during the off-season
• To view Fund Accounts, make sure to check the box in the wizard in order to include them in the journal entries.
• The information given for fund accounts is only the overlay, interest, and principle deductions.

  Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

Introduction

Welcome to Day 2 Accounting, purchasing options and RVG. This course is designed to give you a deeper understanding the various purchasing options, as well as residual value guarantee, and how these can impact an asset
By the end of the course, you should be able to:

• How to set up the various options to purchase and their impacts
• How to create a calculation to purchase when there is no option to exercise
• RVG Treatment in lease accounting at the commencement and end of a term.

Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Options to Purchase

In this video, we will discuss setting up the various options to purchase and how they impact the lease accounting Schedule and Journal entries.
Before we get started it is important to note that what will be shown in this video are examples of the many variations of options to purchase that can be implemented in the VL platform.

For our example, we will use a vehicle lease.

Background: For a little background, we set up the lease record to start on the first of August, 2023, and it expires on 7/31/2027, so it’s a 4 year lease. In the clauses section we have set up a purchase option.

In the clause tab, select to edit the option, here. An edit window will display.

The option was set up as follows:

The name is Option to Purchase, for reference. The Option type is a purchase, the status is set to future.
For this example, the exercise window will be enabled when there is exactly one year left in the lease, but most options can be purchased at any time. In that event, the option will be Active instead of Future. The option can be exercised at any time the status is Active. At that time they can purchase for the amount indicated below, or ride out the final year of the lease.

We also checked the box “Likely to be exercised,” and in the comments, we provide the purchase price of $20,000

It’s important to note, checking “likely to be exercised” can be checked when the status is Future, it will not affect the accounting calculations. Once everything is entered, click Save.

On the entries tab we will need to add two different entries.

The first will be the base rent, monthly lease payment which is 659.55. These payments would continue for all 4 years of the lease, if the option to purchase was NOT, exercised.

Next there is an entry for the option to purchase, which would be treated like a final one-time payment, here. Note the effective date of the option we viewed a moment ago.

If the option to purchase is going to happen, then a new calculation will be made in the lease accounting section.

Once on the page, we will start a new calculation. Name the calculation appropriately.

Please note: Because “likely to be exercised was checked, it does not modify the end day for a calculation. You will need to change this to the effective date of the purchase. So in our case, we will change this to July, 31 2026.

Move through the rest of the steps. On step 5, you can see the entries we created here. However, when moving on to step 6 we will need to make a slight change. Review the fair market value and move on to #1 – Does Ownership Transfer at the end of the lease. Here you will select YES. After selecting YES, enter an override reason. In this case we will indicate “Option to Purchase exercised”. Scrolling down, that change will make the Computed Lease Type as a Finance Lease instead of Operating. Once done, click Save.

Once the schedule is created you will see a couple of things. First, there are 36 payments and the final payment of $20,659 at the end and the vehicle is now owned.

This is a pretty straight forward method IF we know the option is going to be exercised.

But what if you don’t know if the option will be exercised? There isn’t much of a difference in the workflow. You will create a new calculation, work your way through the steps in the wizard, this time on step 2 keeping the End date through 7/31/2027 (instead of 2026 as showed earlier), move on until you get to step 5. On this step, we will take that final payment of $20,000 and change the treatment to be excluded. On step 6, we are going to leave #1 as “no”, and in this instance, it will keep it as an Operating lease since its 4 years on an 8-year asset life; we don’t reach the useful life threshold, nor do we reach the fair market value threshold.
What if it is set up without exercising the option but at a future point, the option will be exercised? The solution to this is a straightforward modification of the lease.

On your Calculation created for No Option, you can go to actions, then select, Create Remeasurement Calc.

Select Modification but let’s say, 1 year into the lease, on August 1st 2024, we change our mind and decide that this will be likely to be exercised. In this case, in the wizard, make the effective date as the date the option is likely to be exercised and also create a new expiration date to be the date the option is effective.

In step 2, change the Assumed end date to the Window to Exercise Start date because we are electing to purchase at the earliest possible date. Walk through the steps as normal.

Note that in step 5, the final payment is brought in, or not excluded like in the previous example.

On step 6, we will review our fair market value and useful life, then for #1, we will select yes and enter an override reason changing it from an operating lease to a finance lease.

Checking to activate both the No Option and Modification calculations In the schedule shows us the change due to the remeasurement., You will see the Right of Use Asset and the Total Ending Liability Balance will increase due to the final payment.

A bargain purchase option is assumed ‘likely to be exercised’ due to economic incentive to pay.

For example, buying the asset for $1 at the end of the lease, or getting a $100,000 vehicle for $20,000 after three years. Both are strong incentives to make the purchase.

To complete this, it’s the same steps creating the new calculation for an option to purchase with one difference.

First, we will create a new calculation. Changing the date in step 2 to July 31, 2027.

Step 5 will include the final purchase price and on step 6, for #2, you will check YES, that there is a bargain purchase price clause in the lease. Enter the override reason, then click save.

Once the schedule is created you will see a couple of things. First, there are 36 payments and the final payment of $20,000 at the end and the vehicle is now owned.

Purchase Without Likely To Exercise Option

In this video, we will discuss how to purchase an asset if there is no Option to Purchase and nothing is likely to be exercised but the asset is still purchased.

(14:00) There are times when there isn’t an option for a lease and we simply just want to purchase the asset.

For example, in the 3rd year of a 4 year lease, the company simply wants to purchase the asset outright as a separate distinct action. There is no option value, the asset is just purchased at a depreciated market value applicable at that date.

Instead of conducting a modification to an existing calculation, like we did in earlier examples, on the calculation (which has no option clause), we go to the action menu and select Purchase Asset, instead of remeasurement.

Once the window opens, we will select the date of July 31, 2026 with a purchase price of $20,000. In the reason section, type the reasoning. Once complete, click Complete Purchase.

A new calculation will display that will be labeled “Purchase of” and in this case it is “Purchase of no option”. Leaving only that calculation checked scroll down to the new schedule.

What we will see at the end of 7/31/2026, There is a right of use asset and liability are the same.

There will be additional entries when you scroll down to the Journal Entry for 7/1/2026. These entries will move this from being a right-of-use asset to a tangible fixed asset.

First there is the normal expenses that bring it to the end of the month. However, because of the purchase, you will see a fixed asset value here. You also see the accumulated depreciation and the purchase price here. Everything will end up in balance. (15:51)

Residual Value Guarantees (Open Ended Leases)

In this video, were instead of having the option to purchase, there is only a Residual Value Guarantee or RVG. RVG may also be known as Open Ended Leases.

RVG is a guarantee to the lessor, at the beginning of the lease, what the asset’s value will be at the end of the term. If the asset value is less than the RVG at the end of the term, the Lessee pays the difference. In exchange for assuming the value risk, the lessee also gets to benefit by receiving payment should the asset be worth more than the RVG.

In this scenario, let’s say a fleet vehicle is leased with a residual value of $10,000, but at the end of the term it is worth $12,000, the difference of $2,000 should be paid to the lessee due to them overpaying by that amount. However, if the vehicle is worth only $8,000 at the end of the term, the lessee must pay the $2,000 short fall.

In the VL Platform, the first thing that needs to be done if setting up a new record, is to come to lease accounting and set up the initial calculation. In the wizard, on step 3, we will fill in the RVG section with the $10,000.

Please note, on day one of the lease, we won’t know how much we will owe on that $10,000 at the end of the lease, so we will leave this section blank.

Continue through the wizard, in step 4. What was normally a discount rate now becomes a Explicit Rate due to the RVG being added in step 2. Enter an explicit rate and click next.

On step 5, since we are using the same lease record, there is a final payment entry, make sure to exclude that since we’re just guaranteeing residual value, not the purchase of the asset.

On step 6, there will be an additional line. Here you can see the NPV of payments, and the NPV of Payments including the RVG. The NPV of the payments is used to create the liability balance, but the NPV of payments including RVG is used to determine the lease type test. Please note, this lease will still be an operating lease due to the NPV including RVG being less than 90% of the Fair Market Value. If it were more, #4 will switch to yes, and the lease will flip over to a Finance lease.

Once complete, click save to create the calculation.

What ends up happening toward the end of the lease term is that we will start to get an idea what the Residual Value may end up being.

For example, the company has a truck that gets 8 miles to the gallon and gas prices have risen significantly, the truck may not be worth $10,000 anymore, let’s say its worth $8,000. This will result in having to make a payment to the lessor.

To account for this, create a remeasurement calculation and select Modification. The effective date, will be whatever we decided we had a pretty good idea what the RVG will be. More than likely it’ll be a few months before the expiration of the term. Then click, Create Remeasurement.

Move through the wizard and on Step 3, we keep the RVG at $10,000 but in the Probable Amount Owed at End of Lease under RVG, we will enter what we as the lessee think we will have to pay the lessor at the end of the term.

Please note, if you enter a value in this field, RVG becomes a required field.

Move through the rest of the wizard and save the modification remeasurement.

Notice on the schedule is showing an extra $2,000 at the end of the term. The schedule will automatically calculate numbers based on the dates and that additional $2,000 entered as shown here for Total ending liability, ROU, and straight line rent.

Key Takeaways

This concludes our course on purchases and RVG
Remember….
• Checking Likely to be Exercised will not affect accounting calculations
• A modification must be done to the asset if likely to be exercised is not checked, but want to exercise the lease in the future
• Depending on the purchase type and if likely to be exercised, the asset may switch from operating to a finance

Thank you for attending this course – any questions, suggestions or feedback can be sent to support@visuallease.com

Introduction

Welcome to Approvals training with VLU. The purpose of this training is to illustrate how to request approvals across the visual lease platform and, as an approver, be able to accept or reject the approval request.

By the end of this course, you’ll be able to:
● Know where to request approvals for the General Tab, Entries, and Lease Accounting
● Know where to approve requests as an approver for the General Tab, Entries, and Lease Accounting.
● Where to find the Approval summary page and report.
Please take a moment to review the agenda. To view a particular topic, please jump to the corresponding timestamp.
Lease General Status

In this video, we will show you how to request a status approval from Pending to Active, and how to approve the request in the General Tab.

Before we get started, it is important to note that you will need to contact visual lease support to turn the approval feature on.

It is also important to note, turning on approvals may impact the day-to-day workflow in the VL platform.

With approvals turned on, a user can create a new record, but the status options will default to Pending. In order for this to be set to active, the user will have to click the kebab and select Request Approval.
Before we continue, it’s important to note that if the option in the admin section called “user selects approver”, there will be a drop down option when requesting approval. Just select the approver from the list, add a comment and click submit. IF that option is not checked in the setup, the subsequent email notification will be sent to all approvers on the list.

Once submitted, as a regular user, there is nothing else to do but wait for the approval to be accepted or rejected.

Switching roles a moment, the approver will receive an email notification that looks something like this <show email pic>. This is just to let them know that they must approve or reject the request.

To do this, log into the system and navigate to the record. Note, there is a way to complete this in bulk if there are 3 or more approval requests by using the Approval Summary. This will be covered later in the video.

For now, on the record, navigate to the section that the email said was waiting for approval. In this case it’s the Status on Lease General. You’ll notice the red dot located on the kebab indicating an action needs to be taken. Open the kebab and select Manage Approvals. A pop-up window will open where you will approve or reject the request. For this training, let’s go ahead and approve this and you can make any comments here. Once completed, click save, and you’ll notice the status went from Pending, to Active.

Please note, any edits will put the status back to Pending and approval must be requested again.

Financial Entries Status

In this video, we will show you how to request a status approval for from Pending to Active, and how to approve the request within the Financial Entries section.

Before we get started, it is important to note that you will need to contact visual lease support to turn the approval feature on.

It is also important to note, turning on approvals may impact the day-to-day workflow in the VL platform.

With approvals turned on, a user can create a new financial entry, but the status options will default to Pending. In order for this to be set to active, the user will have to click the kebab located here, and select Request Approval.
Before we continue, it’s important to note that if the option in the admin section called “user selects approver”, there will be a drop down option when requesting approval. Just select the approver from the list, add a comment and click submit. If that option is not checked in the setup, the subsequent email notification will be sent to all approvers on the list.

Once submitted, as a regular user, there is nothing else to do but wait for the approval to be accepted or rejected.

Switching roles a moment, the approver will receive an email notification that looks something like this <show email pic>. This is just to let them know that they must approve or reject the request.

To do this, log into the system and navigate to the record. Note, there is a way to complete this in bulk if there are 3 or more approval requests by using the Approval Summary. This will be covered later in the video.

For now, on the record, navigate to the section that the email said was waiting for approval. In this case it’s the Status on new financial entry. You’ll notice the red dot located on the kebab located here, indicating an action needs to be taken. Open the kebab and select Manage Approvals. A pop-up window will open where you will approve or reject the request. For this training, let’s go ahead and approve this and you can make any comments here. Once completed, click save, and you’ll notice the status went from Pending, to Active.

Please note, any edits will put the status back to Pending and approval must be requested again.

Lease Accounting Status

In this video, we will show you how to request a status approval for from Pending to Active, and how to approve the request within the Lease Accounting section.

Before we get started, it is important to note that you will need to contact visual lease support to turn the approval feature on.

It is also important to note, turning on approvals may impact the day-to-day workflow in the VL platform.

With approvals turned on, a user can create a new Calculation, Transition, or Remeasurement, but the status options will default to Pending. In order for this to be set to active, the user will have to click the kebab located here, and select Request Approval.
Before we continue, it’s important to note that if the option in the admin section called “user selects approver”, there will be a drop down option when requesting approval. Just select the approver from the list, add a comment and click submit. If that option is not checked in the setup, the subsequent email notification will be sent to all approvers on the list.

Once submitted, as a regular user, there is nothing else to do but wait for the approval to be accepted or rejected.

Switching roles a moment, the approver will receive an email notification that looks something like this <show email pic>. This is just to let them know that they must approve or reject the request.

To do this, log into the system and navigate to the record. Note, there is a way to complete this in bulk if there are 3 or more approval requests by using the Approval Summary. This will be covered later in the video.

For now, on the record, navigate to the section that the email said was waiting for approval. In this case it’s the Status on modification that was made. You’ll notice the red dot located on the Action Menu here, indicating an action needs to be taken. Open the menu and select Manage Approvals. A pop-up window will open where you will approve or reject the request. For this training, let’s go ahead and approve this and you can make any comments here. Once completed, click save, and you’ll notice the status went from Pending, to Active.

Please note, any edits will put the status back to Pending and approval must be requested again.

Approvals Summary & Report

In this video, we will show you how to access the Approvals Summary and how it can help to quickly request or manage approvals from a list.

We have shown you how request or approve status changes by going directly to those record sections. However, there is another way to quickly accomplish this task which is with the Approval Summary Screen.

To access the approval summary simply go to Tools, then Approval Summary.

For a regular user, a window will open that will list all the requests, regardless the status they are in. Please note, requests that display will only show the ones that you submitted.

You can filter the list by system area, role, and status.

The record ID will link you back to the record for further editing if needed.

The type column will indicate what portion of the record the request was submitted.

You can also access the approval log for each request, located here.

As an approver, the process is similar to that of a regular user. To access the Approval Summary, click tools, then Approval Summary.

You can filter the list with the same information as a regular user. However, if there are multiple requests to be approved you can click on link in the column labled “Request/Manage”. If a request hasn’t been approved yet, you can click the link “Manage Approvals”, and complete the pop up window the same was as mentioned earlier in this video regarding approvals.

A quick note. What happens if you reject a request? Once you select Reject, write a comment about what needs to be changed and click save. An email will be sent to the requestor where the changes will need to be made and another approval request will need to be submitted.

Having everything in a list will help the approver easily identify what has already been approved and what needs to be approved and quickly take care of any approvals or rejections from a single screen.

If a report is needed for the approvals summary you can find it in the reports section of the platform. This report is especially useful for more granual tracking and seeing all users requests within the organization.

To access this report navigate to Reports, select standard lease reports. Once in the reports screen, select lease criteria or a set list of leases, then select Approvals Summary Report and enter the date range. Then you can click generate report, email, or save. For this training we will select generate report with will download a spreadsheet.

Inside the report you will see the time stamp when the request was made, the system section, and lease ID.

If the system selection is FASB Calculation, then the FASB Calculation Name column will display the calculation name. If the system selection is Financial Entries, the financial entry category will be displayed here.

Scrolling to the right, if there is a statement number it will be located here.

If the system selection is Financial Entries, then the Effective/End Date, Frequency, and Amount will show data here.

Next we have the requestors name, approver name, status and log.

Key Takeaways

This concludes the video on requesting and managing approvals within the visual lease platform.

Remember…
● Approvals are optional and visual lease support must be contacted to turn on this function
● You can request and/or manage approvals from four different areas of the platform
● Use the approvals summary screen for quicker requests and approvals
● Use the Approval Summary report for a detailed analysis from all users requests
Thanks for watching. If you have any questions, suggestions, or feedback please reach out to support@visuallease.com

Introduction

Welcome to Introduction to Day 2 Accounting.

By the end of this video, you will:
• Have a better understanding of what Day 2 accounting is
• How exercising an option affect financial schedules, and how to fix it
• How lease administrators and accountants cooperate when an option is exercised

Please take a moment to review the agenda. To view a particular topic, jump to the corresponding time stamp

What is Day 2 Accounting?

In this video, we will discuss what Day 2 Accounting is and what falls under this categorization.

The lease life cycle has various stages, some of which are considered Day 2 accounting, while others are not. Let’s cover the basics. Here is a list of the life cycle stages.

First, there is the lease inception and commencement, followed by the initial recognition and measurement. All of which are considered day 1 accounting.

Next, there are any subsequent remeasurements, which may sound like a day 2 accounting but it really is not, it still falls under the day 1 category. What this section really means is what happens every month after the inception but in the absence of any sort of changes. This is due to the particular parameters being set up, and a schedule where everything is going to happen automatically over the remaining life of the lease. UNLESS some other activity is taken

For example, imagine an operating lease. We know the periodic rent expense is going to be straight-lined.

We know that every month, the liability is going to decrease by the amount of cash paid, less the interest accrual for the time value of money. That’s the liability reduction.

We also know the Right of Use Asset Amortization is going to be the straight-line rent expense, less the interest for the time value. This will be the amortization reduction of the right-of-use asset, which happens every month automatically.

So the first three images on this infographic is all really day 1 accounting. The remaining are all considered day 2 operations.

The one to focus on is the liability remeasurement. But when is it necessary to remeasure liability? Typically, it’s when there is some change in the financial structure of the lease. In this next graphic from the Deloitte guide, there are some examples of this, which can be the following: it can be a change in the lease term, the assessment of a purchase option exercise, or an assessment of an option to extend the term.

In the case of extending the term, there will many things that may need to be updated:
1. first, the structure of the lease payments, also known as the consideration for the contract, which is modified in the Financial Entries page
2. the consideration allocation, which is if the organization structure changes. Change this in the allocations page
3. Next there is the stand-alone prices. If multiple schedules are created in the record, select the appropriate ones in the wizard
4. the discount rate gets updated, in most cases
5. and lease classification, if applicable

Please note: If the modification is just a change in the residual value guarantee, then use the same discount rate, do not change it. There are rules on how some changes will be applied.

In the visual lease platform, most of these changes or updates will be handled with modifications, remeasurements etc…in the lease accounting module.

Exercising an Option

In this video, we will discuss exercising an option and creating the appropriate changes to the entries and lease accounting pages.

When exercising an option, there will be changes to terms and conditions, and perhaps other terms of the lease. It is best practice to create a process when activity by the lease administration makes a note of the change for the lease accounting side to see, and complete that remeasurement or recalculation.

To set up an example, there is a lease that runs through 2025 and a schedule was created in the entries tab showing a 3% increase being applied each year.

There is also a clause that if the option is exercised, it will run an additional 5 years, with it likely to be exercised and renewed at 95% of Market Rate

First let’s show you what not to do. Navigating to the lease accounting page, you can see the original schedule was created, but at the end of May 2023, this option is likely to be exercised. Without adding additional entries to account for the exercised option, the rent will display as zero dollars after the option has been exercised. It is important to add the additional increases BEFORE completing the remeasurement.

To add the increases, navigate to the Entries page and click edit. Assuming the 3% increase is still in place we will click Add Increase. Add the date for 12/1/2026 since the current annual increase only runs through 12/1/2026. Select Repeats Annually and type in 1 year. The select the percent radio button and add in 3%. Repeat this step for 1/1/2027 and beyond (for however long needed). Once done, click save.

Next, enter an end date for the extended option that was exercised.

Please note: The platform is not looking for the exercise date, instead it is looking for the expiration date located on the general tab, which is November 30th, 2025, which isn’t capturing the extended term of the lease. So in this case, you will need to enter an end date here, to reflect the end date as November 30th, 2030. If the end date is not entered here, the rent will show as zero on the schedule after the exercise date.

Now that there are increases beyond 2025, we will then head to the lease accounting page and find your calculation. In this case it is the transition calc from FASB 840 to 842 and select actions from the drop-down menu. Select Create a remeasurement. The type will be a Modification and the date will be June 1st, 2023. Navigate through the wizard adding any necessary information. In this case we are keeping the defaults. Once complete click Save. Once complete you can see on the schedule that the exercised option is picking up the additional rent from 2026 and beyond.

Please note: Until an actual agreement is made with the landlord, this process is only providing an estimate.

Lease Administration and Lease Accounting

In this video, we will discuss how lease administration and lease accounting must collaborate when an option is exercised.

So how does this tie into the connection between lease administrators and lease accountants?

If a company has an arbitration process where, in our example, is 95% of the market value, they will go ahead and renew.

To do this, there needs to be a remeasurement to recognize that the option is likely to be exercised. Then, another remeasurement is exercised to true up the expenses.
In order for this to happen, there will be a collaborative effort between lease administration and accounting.

First, lease administration will need to go to the general tab and open the lease options section on the left. Then click on available to exercise the option automatically. Once complete, the lease option that was just exercised will be removed from the section and will display as “exercised” in the clauses tab in the options section.

Next the administrator will come to the financials tab and click on Entries to update the financial entries to reflect the new agreed upon terms.

At this point in time the lease administrator should contact the lease accountant that a modification needs to be made. To assist in shortening the time, the administrator can come to the clauses section and modify the option and any changes that are part of the exercise of that option.

While the administrator is completing the work in the clauses, the accountant will complete the modifications as shown in the previous section of this video to create the new term.

Key Takeaways

This concludes the video on Intro to Day 2 accounting.

Remember…
• Not all parts of a record’s or lease’s life cycle is considered day 2 accounting
• When exercising a lease option input entries and enter a new end date on the entries page before conducting the remeasurement
• Administrators and Accountants should work cooperatively when exercising an option
Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

Introduction

Welcome to Net Present Value training with VLU. This video is designed to give you a better understanding of what Net Present Value is, and the different methodologies used to generate it.

The the end of this course, you should be able to:
• Understand how Net Present Value is utilized in accounting
• Know how Net Present Value is calculated
• And how to calculate Net Present Value for mid-period payments.
Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Understanding Net Present Value (NPV)

In this video, we will discuss how Net Present Value, or NPV, is used in accounting and how it is calculated.

NPV is a capital budgeting method used as part of the Cost Benefit Analysis to determine the profitability of an investment. It is an essential tool for assessing the viability of investments by accounting for the time value of money. This way, you can compare the investment cost in today’s dollars and the value of the expected return.

NPV can be applied to your lease liability by applying an incremental borrowing rate to determine the present value of the lease payments. Applying the formula will give you an interest and principle as if your lease was a loan.

Things to consider for the formula:
• Number of periods in the calculation
• The Interest or Discount rate
• The Present Value or what the money is worth today
• The regular payments being made
• And what is the future value or in other words, what is the dollar worth at the end of this time being calculated

For example, buying a house:
• You take out a 30 year loan, so you know the number of periods is 360 (months)
• You know the interest rate the bank will charge
• You know the present value, or, the amount of money being borrowed
• You know the future value will be zero since the loan will be amortized down
• So with all this information, we need to solve for the payment amount

So with that, the formula can be explained as follows:
• Net Cashflow at a point in time (Rt)
• Over 1 + i (or interest) to the power of the number of periods

In order to use this formula you will need to find the information needed for it. But where can it be found? It can be found in the visual lease abstract report.

Please note, this report is color coded for illustration purposes only. The report will not contain these colors.

Here, the interest rate is highlighted in Blue (i). Scrolling down further we have the period in red, the payments in yellow, and scrolling all the way down to the bottom of the calculation, the liability will display as zero, which is the future value, highlighted in light blue. With this information we can solve for the present value (7:26)

NPV for Individual Months

In this video, we will discuss the different methodologies for calculating present values for individual months, and why they are different.

The Present Value for individual months can be calculated with two different types of methodology. The first is using the Beginning of Period, and the second is using End of Period methodology. Each methodology will give slightly different results. (8:10)

Please note: It is important to use the same calculation method that is used for making the interest charges.

In beginning of period methodology, the interest is calculated based on the payment being made at the beginning of the month. Take the ending balance from the previous month, subtract the payment, and then multiply by the interest rate.

Note: The payments included in this methodology start with payment number 2. The first payment cannot be discounted in this formula and needs to be added at full face value.

In end of period methodology, the interest is calculated for payments made later in the month. Multiply the ending balance by the interest rate, then subtract the payment.
Both methods are allowed under all reporting standards. It may be more appropriate to use the method that most closely matches when you make payments. However, the most important thing is to be consistent. If you are unsure of which method your organization uses, or which you should use, consult with your ERP.

Visual Lease supports both methods and should be set up during implementation. It can be changed in Administrator at any time; however, only make this change if you are confident that it must be done.

Note that in Visual Lease, Beginning of Period is selected by default. If the calculations done in Visual Lease do not match those done in another tool, such as Microsoft Excel or your ERP, check which methods each platform is using. Excel uses End of Period by default.

If you are using a variable period calendar such as a variant of 4-4-5, or a 13-period calendar, the calculations will be done slightly differently. Visual Lease calculates these calendars daily rather than monthly. This may cause some discrepancies in the reported values.

Consult with your ERP to determine if an adjusting entry is needed.

Calculating NPV with Mid-Period Starting Points

In this video, we will discuss calculating present value when payments that are recurring in the middle of the month instead of at the beginning of the month.
In Visual Lease, the date of the payment is an important date because it will be assigned to that period where a period is considered a month. The platform uses the convention that payments are made at the beginning or end of each period (or month).

For example, there is a mortgage on house for $2000. The payment is made in February which only has 28 days. However in March, the same $2000 payment is made even though there is 31 days in that month. The reason the payment is larger in march is because the platform uses the convention that months are equal periods. There is nothing smaller than a month, or in other words, for NPV, the number of days are not considered.

For example, the lease payments are all 10,000 a month, then this one that is paid in the middle of the month. However in the P&L column here, it displays the prorated amount to account for the mid-month payment. But the cash payment is still the same for each period.

If calculating a straight forward NPV using Beginning of Period methodology, the NPV calculation will not agree with the platform calculation. Why is this happening? Because the first period payment happened mid month, and the second payment was made for the 2nd period, but it was only 12 days later instead of a full period. So how do we fix that? We add a new period number that is 12 days of a 31 day month. Then all numbers after that are the full period plus that fractional amount.

As a result, a slightly different formula needs to be used to account for that.

Instead of NET present value. We use the PRESENT VALUE of that single payment. To do this, take the discount rate divided by the number of periods for the per period discount rate, in this case 12. Then take the period number, payment is blank, minus the amount of the payment as a future value, which will then solve for the Present Value. Adding all the present values will then give the Net Present Value, which will then be in agreement with the platform for Total Ending Liability.
To sum it up the process, follow these steps when solving for NPV with a mid-month payment:
1. Use the Beginning of Period Methodology
2. Understand the first payment has no discount factor
3. The second payment is based on the # of the payment was made mid-month, in our case it was 12 out of 31 days, which is calculated as a fractional payment
4. Each subsequent period should be 1 more than the prior period.
a. So you should have the initial fractional period, +1 period, + 1 period, continuing to the current payment
5. Solve for present values
6. Sum the present values to get in agreement with the ending liability.

Key Takeaways

This concludes the video on Net Present Value.

Remember:
• All the numbers needed for the NPV formula can be in the abstract report
• It is important to select an NPV methodology that is consistent. In other words, don’t use two different methodologies or you will receive inconsistent results
• NPV can be calculated for mid-period payments but extra steps need to be taken in order to account for the fractional payment.
•
Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

Introduction

Welcome to Functional Currency and applying exchange rates with VLU.
In this video, you will learn.

• The difference between record currency, local currency, functional currency, and reporting currency.
• What a currency table is, and how to access it
• The differences between spot rate and average rate on a transaction
• How to edit rates and the impact they can have on transactions
Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Currency Types

In this video, we will discuss the differences between record currency, local currency, and functional currency, as well as how to utilize a roll-forward report to tie multiple currencies together.
A record could have up to 4 different currencies affecting the record. There is a Record/Lease Currency, a local currency, a functional currency, and a reporting currency.

In most cases, the record currency will be the same as the local currency, where payments are made in the same currency where the record is located. For example, a record that is located in the USA gets paid in the local currency of USD.

Although this is the typical set-up, there are rare instances where the record currency is different than the local currency. For example, a landlord in Mexico may want to be paid in USD, the record currency, instead of Pesos, which would be the local currency.

A functional currency is the currency that the business entity does the accounting in.

For example, if there is a European operation based in London and the books are kept in British pounds, but they have records in other countries where payments need to be made in the local currency. However, the payment in local currency will be converted to British pounds since the company’s books are being kept in this currency.

Please note: If functional currency is not present in the general tab of a record, and your company wishes to utilize this, please contact support to get this feature turned on.

Also note: There are different rules when going from a lease currency to functional currency vs. going from a functional currency to a roll up reporting currency. Each instance will be treated differently. By turning on Functional Currency, you will be able to see how the platform automatically applied the proper rules at both levels.

If functional currency is not turned on, then each transaction will have to follow the rules for a remeasurement which is lease currency to functional currency, or a translation, which is functional currency to reporting currency (6:01) by checking the box “Current Spot Rate for non-monetary assets”

When functional currency is turned on however, that checkbox should be be ignored. Checking this box when Functional Currency is enabled can cause discrepancies in the accounting.

Let’s imagine a multinational organization owned by a single parent company. Local Organizations may use a functional currency such as British pounds or Japanese Yen. This company can use a reporting currency that will be translated or “rolled up” into US Dollars for the parent company to add together for reporting.

However, those transactions are not recorded on the parent company’s books. Instead, those are recorded at the functional level.

This can be done utilizing the Roll Forward report in Visual Lease. Here, we will see Please note: The headers of this report have different colors for illustration purposes. Your actual reports will not contain this color coding.

The section in blue is all of the information about the record.

The next set of columns in red identifies the record currency, payment, ROU amortization, and interest.

The columns with the purple header regard the functional currency and its translation from the record currency in red to functional currency in purple which is a remeasurement.

The remeasurement historical spot rate will display the exchange rate between the record currency and the functional currency.

Historical Spot rate are where spot rates that were in effect at the commencement of the lease record. This is important in a remeasurement because the nonmonetary assets are always remeasured using the historical rate.

The lease payment column is translated to the functional currency.

The fluctuation columns consider how much the right-of-use asset has changed due to the exchange rate changing.

Calculating all the fluctuations, the final columns with the purple header will reflect the adjusted payment, ROU, and interest for the functional currency.

The next section in the report labeled in green is the translation from Functional Currency to Reporting Currency.

Please note: The reporting currency isn’t labeled as a column due to it being selected in the options menu prior to creating the report.

This section is smaller because it does not include historical information. It does, however, include the exchange rates, and any fluctuations on the payment, ROU, and Interest. As well as the adjusted rates for each. (14:54)

Currency Table: Spot Rate vs. Average Rate

In this video, we will discuss what a currency table is, and the differences between spot rate and average rate.

To access the currency table, click on the tools icon and select Administrator tools to open the admin window.

Under Conversion Rates, select Currency to open the table.

Once open, a list of different currencies added to the platform are displayed here.

Please note: You can bulk import currencies using the Import Currencies function in the Tools section of the Administrator window

Inside the source currency table, it is important to set up the relationship between the source currency, in this case it is US dollars, to the target currencies to determine the various rates between the two.

In this table it is important to point out the following:
• The Spot Rate – The actual exchange rate at any point in time. This rate may be different at a different time.
• The Average Rate – always applies to a month. It is essentially the average of all the individual spot rates throughout the period of the month.

These are important because each value will need to be translated or remeasured using the rate based on their nature.

For example the right of use asset and liability values. These are on the balance sheet, which is a snapshot of a particular point in time. For end of month balance sheets, it will show the specific values for the last day of the month only. So it is appropriate to translate or reameasure those values using a spot rate.

However, an interest rate is an expense over a period of time within the P&L statement. It is not appropriate to use individual spot rates because it is just used for one date instead of all the dates of the month. So in this case, we would translate or remeasure using average rates.

How does the platform use this information?

Each record will establish an effective date which can mean different things for a spot rate than it does for an average rate.

For a spot rate, it means that rate is going to apply as of the date and will continue to apply for every transaction up until a new spot rate is entered. When a new spot rate is entered, a new effective date is created and any transaction after that new effective date will apply the new spot rate.

Please note, the spot rate can be updated frequently.

The average rate on the other hand, is the average for a period of time. The system will look for the last average rate that has been entered for any particular month and that will be applied to any translations or remeasurements.

For example, at the beginning of the month the average rate entered is 1.33. However, later in the month that rate is changed to 1.35, any remeasurement or translation done in that month will use the newer, 1.35 rate. This means there can only be one average rate for a month and it will always take the most recent rate entered into the platform.

It is important to note, that since the system uses the most recently updated average rate, if for example, a rate is entered in April, and nothing is updated until October, the months of May-September will use the value entered for April. In October, the new rate will apply.

Currency Table: Entering the Data and Best Practices

In this video, we will discuss best practices on entering data into the currency table.

It is recommended that if the company uses their own rates, that they do not use the “Import Rates” button located here, but rather, use the import template to bulk load the selected rates into the system. Why not use the “import rates” button if the company uses their own selected rates? Because the rates with the auto importer may be different than what the company is currently using in their ERP and other systems. This is why bulk importing those values will help keep everything the same across the board.
Next, it is recommended that companies enter in new information at the last day of the month. That way any updated rates will be capture for the full month following the change. This will alleviate any timing issues where the spot rate may have changed. This is because the effective date also includes a specific time.

For example. Instead of entering the new rate on October 31, a user enters the new rate at 1PM on November 1st. Since half of the day is gone, any transactions prior to 1PM will be using the old spot rate, and any transactions past 1PM will be using the new spot rate. By entering new rates.

Please note, this method is a recommendation only. The company is free to enter in rates at any time with the understanding of the timing of when the new rate is applied.

It is also possible to edit a particular rate.

For example. If someone entered in a new rate but due to the date and time of the entry it was giving issues. They do not have to delete and start over again. They can simply come to the entry, click Edit Rate and change whatever was causing the problem. In this case, it was the effective date and time. Once the edits are complete, click save.

Key Takeaways

This concludes the video on functional currency and currency tables.

Remember…
• Contact support to turn on functional currency inside your platform
• Functional Currency is the currency that the company does business in. This can be different than the local currency
• A spot rate is a single point in a time where average rate is the average of a time period
• It’s best practice to change rates at the end of the month
Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com